Playing Ball in the Later InningsDr. Mark G. Dotzour

College Station, Texas

mdotzour@gmail.comwww.markdotzour.com

• The average recession has been 11.1 months

• The average expansion has been 58.4 months

Since 1945,there have been 11 economic cycles

Source: National Bureau of Economic Research

• The average recession has been 11.1 months

• The average expansion has been 58.4 months.

• In September, the current expansion is 87 months.

Since 1945there have been 11 economic cycles

Source: National Bureau of Economic Research

Average Annual GDP Growth RateDuring Previous Expansions

0 2 4 6 8

1949-53

1954-57

1958-60

1961-69

1970-73

1975-80

1980-81

1982-90

1991-01

2001-07

2009-16

Source: Commerce Department WSJ 7/31/2016

Nationally Still Bullish, but the Signals are Mixed

U.S. Leading Index of Economic Indicators

-3

-2

-1

0

1

2

3

4

1985 1990 1995 2000 2005 2010 2015

Pe

rce

nt

Source: Federal Reserve Bank of St. Louis - FRED

Lending Index for the U.S.

Monthly Increase in Nonfarm Workers

-300

-200

-100

0

100

200

300

400

500

600

2010 2011 2012 2013 2014 2015 2016

Ch

ange

, Th

ou

san

ds

of

Pe

rso

ns

Source: Federal Reserve Bank of St. Louis - FRED

All Employees: Total Nonfarm Payrolls

Average Hourly Earningsof All Employees

1.5

2.0

2.5

3.0

3.5

4.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Pe

rce

nt

Ch

ange

fro

m Y

ear

Ago

Source: Federal Reserve Bank of St. Louis/US Bureau of Labor Statistics

Average Hourly Earnings of All Employees: Total Private

Source: The Conference Board

Consumer Confidence Index

30

40

50

60

70

80

90

100

110

120

130

140

150

Au

g-0

0Fe

b-0

1A

ug-

01

Feb

-02

Au

g-0

2Fe

b-0

3A

ug-

03

Feb

-04

Au

g-0

4Fe

b-0

5A

ug-

05

Feb

-06

Au

g-0

6Fe

b-0

7A

ug-

07

Feb

-08

Au

g-0

8Fe

b-0

9A

ug-

09

Feb

-10

Au

g-1

0Fe

b-1

1A

ug-

11

Feb

-12

Au

g-1

2Fe

b-1

3A

ug-

13

Feb

-14

Au

g-1

4Fe

b-1

5A

ug-

15

Feb

-16

Small Business Outlook“Planning To Hire People In The Next Three

Months”

-10

-5

0

5

10

15

20

25O

ct-9

8

Jul-

99

Ap

r-0

0

Jan

-01

Oct

-01

Jul-

02

Ap

r-0

3

Jan

-04

Oct

-04

Jul-

05

Ap

r-0

6

Jan

-07

Oct

-07

Jul-

08

Ap

r-0

9

Jan

-10

Oct

-10

Jul-

11

Ap

r-1

2

Jan

-13

Oct

-13

Jul-

14

Ap

r-1

5

Jan

-16

Net

% o

f R

esp

on

den

ts

Source: National Federation of Independent Business

Planning to Hire People in the Next Three Months

Corporate Profits(With Inventory Valuation Adjustment &

Capital Consumption Adjustment)

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan

-90

Oct

-99

Jul-

09

Bill

ion

s o

f D

olla

rs

Source: U.S.Dept. of Commerce: Bureau of Economic Analysis

Corporate Profits After Tax with Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment

Job Openings in America

Source: Bureau of Labor Statistics BLS release on July 12, 2016

Total Job Openings 5,500,000

Construction 188,000

Manufacturing 353,000

Trade, Transportation, Utilities 944,000

Professional & Business Services 1,021,000

Education & Health Care 1,080,000

Leisure & Hospitality 760,000

Government 542,000

Decline from last month

Light Weight Vehicle Sales: Autos & Light Trucks

0

5

10

15

20

25Ja

n-7

6

Sep

-81

May

-87

Jan

-93

Sep

-98

May

-04

Jan

-10

Sep

-15

Mill

ion

s o

f U

nit

s

Light Weight Vehicle Sales: Autos & Light Trucks

Source: U.S. Dept. of Commerce: Bureau of Economic Analysis/FRED

Q2-16 Q1-16 Q4-15 Q3-15

More Jobs 29% 29% 35% 33%

Less Jobs 35% 38% 34% 32%

Corporate Hiring Plans:Next 6 Months

Source: Business Roundtable

U.S. Freight Movement SlowingAll Freight Modes, All Types of Products

Source: Cass Information Systems

Job Growth in the 21rst Century

2000 2015 Change

TX 9,929,387 12,494,350 2,564,963CA 16,033,179 17,798,614 1,765,435FL 7,565,981 9,153,264 1,587,283AZ 2,410,581 2,959,518 549,937VA 3,522,865 4,051,908 529,043NC 3,986,151 4,495,473 509,322GA 4,071,557 4,549,951 478,394WA 2,901,492 3,343,992 442,500CO 2,294,408 2,718,698 424,290

Texas Economy More DiversifiedPercentage Change in Employment

Total Texas Non-Farm Employment

Source: Federal Reserve Bank of Dallas

6,500

7,500

8,500

9,500

10,500

11,500

12,500

Jan

-90

Jan

-92

Jan

-94

Jan

-96

Jan

-98

Jan

-00

Jan

-02

Jan

-04

Jan

-06

Jan

-08

Jan

-10

Jan

-12

Jan

-14

Jan

-16

Tho

usa

nd

s o

f W

ork

ers

Texas Index of Leading Indicators

Austin Business-Cycle Index

Dallas Business-Cycle Index

El Paso Business-Cycle Index

Fort Worth Business-Cycle Index

Houston Business-Cycle Index

San Antonio Business-Cycle Index

Mythical Chimera

• Something that exists only in the imagination and is not possible in reality.

Mark Dotzour’s Chimera:Winning the Masters with an 15 Handicap

Japan’s Chimera:Quantitative Easing in a “New Dimension”

On Apr 4, 2013 BOJ will buy 50 trillion in JGB and 10 trillion in Nikkei ETFs

Plan to double the monetary base from 135 trillion yen to 270 in two years.

Government Pension Investment Fund will cut holdings of government bonds from 60% to 35% to increase demand for stocks.

“This is taking monetary easing into an entirely new dimension.”H. Kuroda, Governor BOJ

Japan is Imploding (Now)

• The BOJ is now a top-ten stock holder in about 90% of the stocks on the Nikkei 225.

• The Nikkei is down 9% so far in 2016.

• Buying 3 trillion yen of stock every month.

• Goldman estimates by 2017, the BOJ will be the largest stockholder in 40 of the Nikkei companies.

• BOJ currently owns about 55% of the ETF market.

• Won’t sell ETF holdings until 2026.

Chinese Chimera:The Shanghai Stock Exchange

Plunged 30% in three weeks in June 2015.

• You can buy, but you can’t sell.

• Please borrow money to buy stocks.

• Half of all shares are suspended from trading.

• Declared war on “foreign puppet masters” and vicious short sellers.

European Chimera:

I can help countries that are heavily in debt by loaning them even more money.

“The Governing Council is willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation. “

Draghi, November 3, 2015

Low Interest Rates Around the World

German 2-year -.67German 5-year -.58

German 10-year -.09%Swedish 10-year .18%Dutch 10-year .08%Swiss 10-year -.66%

Japanese 10-year -.29%

US 10-year 1.51%

Inflation Rate Remains Low

-20

-15

-10

-5

0

5

10

15

20

25

30

Jan-20 Jul-34 Jan-49 Jul-63 Jan-78 Jul-92 Jan-07

Per

cen

t C

hg.

Fro

m Y

ear

Ago

Source: U.S. Dept. of Labor: Bureau of Labor Statistics

Consumer Price Index for All Urban Consumers: All Items

University of Michigan Inflation Expectation

0

2

4

6

8

10

12

Jan-78 May-83 Sep-88 Jan-94 May-99 Sep-04 Jan-10 May-15

Per

cen

t

Source: Thomson Reuters/University of Michigan

University of Michigan Inflation Expectation©

The End of the Credit Super Cycle?Maybe Not

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Ap

r-7

1

Au

g-7

7

Dec

-83

Ap

r-9

0

Au

g-9

6

Dec

-02

Ap

r-0

9

Source: Board of Governors of the Federal Reserve System/FRED

Pe

rce

nt

30 year mortgage rate10 year treasury rate

The Energy War Escalates

Energy Wars$65 is a “Fair Price”

OPEC president Mohammed bin Saleh al-Sada said a minimum price of $65 a barrel is “badly needed at

the moment.” He cautioned that the security of future supplies is as risk because of the price slump

that has squeezed oil producers since 2014.

Source: Associated Press 5/24/16

Saudi Arabia has announced it will raise domestic petrol prices by more than 50 per cent for some products.

Prices will increase for electricity, water, diesel and kerosene, after the country posted a deficit of $135 billion in 2015.

The 2015 deficit is the highest in the history of Saudi Arabia, which relies on oil for 90 per cent of public revenues. Contemplating selling a portion of ARAMCO to raise money.

The IMF has warned Riyadh that failure to cut spending and implement reforms will eat up the country's fiscal reserves in just five years

Energy WarsSaudi Arabia Insolvency

The Saudi Binladin Group is the largest construction company in the Persian Gulf region. They have an estimated $30 billion in debt

They haven’t paid subcontractors and suppliers for months. The Saudi government is delaying payment for completed projects.

WSJ 3/26/16

Middle East Budget Strains

Energy Wars

Thousands of Indian workers in Saudi Araiahaven’t been paid for months, prompting India’s government to hand out food to hungry workers.

Assisting 10,000 Indian workers who New Delhi says are without a job, pay and food. Some workers for Saudi Oger report they haven’t been paid in seven months.

Source: WSJ August 1, 2016

Middle East Budget Strains

Qatar’s ruler on Tuesday warned citizens that the small Gulf state’s government can no longer “provide for everything” and called on individuals to take personal initiatives to build a strong nation, amid a year of tumbling oil prices likely to dent national budgets in the region.

Source: Al Arabiya 11/3/15

February 3, 2016

Energy WarsUS Oil Fields Profitable Below $40

Continental Resources says that its 2016 capital expenditures budget will be cash flow neutral at an average WTI price of $37.00.

Their 2016 budget will be $920 million, compared to $2.5 billion last year.

Energy WarsU.S. Private Equity Waiting in the Wings

Possibly $100 billion in private equity capital waiting to buy distressed energy assets.